Villalobos' orbit includes Christopher Bower, a La Jolla financier who's been an adviser to CalPERS since 1990 and manages more than $600 million for the pension fund.

Bower's firm, Pacific Corporate Group Holdings, advised CalPERS when the fund made its first investment with a Villalobos client, a $100 million deal in 1997. Despite its close relationship to CalPERS as an official adviser, the La Jolla firm nonetheless hired Villalobos two years ago to ask CalPERS and other investors to buy Pacific Corporate's stock. CalPERS declined, and Villalobos earned no fees.

That was a rare miss for Villalobos. From his perch in Stateline, Nev., at Lake Tahoe, Villalobos has earned at least $60 million in fees off CalPERS investments since leaving the board in 1995, according to documents released by the pension fund.

The disclosure of such hefty commissions paid to a former board member has tarnished CalPERS' reputation, said Edward Siedle of Benchmark Financial Services, a Florida consulting firm specializing in pension fraud.

"They're supposedly the gold standard of pension governance," he said.

Middlemen's role reviewed

Last month CalPERS hired a law firm to run a "special review" of Villalobos and other placement agents – the middlemen hired by investment firms to pitch deals to public pension funds.

Cuomo already has issued indictments, charging New York political operative Hank Morris in a kickback scheme involving that state's public pension fund.

Ripples from the indictment have spread West. In July, without admitting wrongdoing, Pacific Corporate – the CalPERS adviser and one-time Villalobos client – repaid the New York pension fund $2.1 million to resolve a probe by Cuomo.

Court records say the firm won a $750 million investment from the New York fund after one of its executives secretly agreed to give Morris a slice of the deal. The executive, who wasn't identified and has left Pacific Corporate, didn't tell his colleagues about Morris' role.

Pacific Corporate said in July it agreed to the settlement with Cuomo "to make the public whole for the improper actions of a former executive."

Spokeswoman Pat Macht said CalPERS "is troubled by" Pacific Corporate's activities in New York. She wouldn't elaborate on the fund's concerns about its adviser and fund manager.

Monday, November 2, 2009

Nov. 2 (Bloomberg) -- Kevin McCabe, who acted as a placement agent for a private equity firm that received $800 million in New York pension fund investments, agreed to pay $535,000 to end a probe of his role by state Attorney General Andrew Cuomo, according to his attorney.

McCabe, once chief of staff to former New York City Council speaker Peter Vallone Sr., would be the latest person ensnared in Cuomo’s investigation of corruption at the New York state Retirement Fund to cooperate with Cuomo and come to terms.

“McCabe has chosen to settle with the Attorney General’s office to clear his name,” said Michael Dowd, McCabe’s lawyer. “He agreed to pay back all the money he received on the theory that, if it had any taint to it, even if it didn’t involve him, it would damage his reputation.”

Richard Bamberger, a Cuomo spokesman, declined comment earlier today. Later, he said, “there is no deal.” Dowd said the agreement hadn’t been signed.

McCabe acted as a placement agent for GKM Newport Management LLC, a Los Angeles-based firm that had $13 million under management when the state first invested, according to a U.S. Securities and Exchange Commission complaint.

Morris was charged in March in a 123-count indictment in connection with an alleged kickback scheme at the state pension fund. The GKM investment is among the transactions in the indictment and a related SEC complaint at the center of a probe by Cuomo and the SEC of money managers and placement agents who used ties to public officials and kickbacks to buy and sell access to the $2 trillion in U.S. public pension systems.

Not-Guilty Plea

Morris has pleaded not guilty. William Schwartz, his attorney, didn’t immediately respond to a call for comment.

GKM didn’t return a call for comment.

In 2004, according to the SEC complaint, Morris and David Loglisci, New York state’s former deputy comptroller who also has been indicted, arranged for investment firms to pay sham finder fees to political allies in exchange for retirement fund investments. The complaint cites the GKM deal as an example.

Loglisci and Morris “entered into an arrangement” with a managing director of GKM to hire a political fundraiser, identified only as “Individual B” as its placement agent in exchange for receiving an investment, the complaint says. GKM agreed to retain Individual B, the complaint says, despite the fact that the individual “had no relevant experience and had never acted as a finder.”

‘Substantial Fee’

The complaint says Loglisci made it clear to GKM’s managing director the fund wouldn’t invest with GKM unless the fundraiser was paid “a substantial fee.”

The complaint cites an e-mail the GKM managing director sent to one of his partners stating Loglisci “made it clear to me that this deal is happening for us for one reason and for one reason only and that is their relationship” with Individual B.

Dowd said that, although McCabe appears to be Individual B, the SEC got its facts wrong. “He is not a fundraiser and the communication they speak of between Loglisci” and the GKM managing director “doesn’t make any sense.” He said McCabe was already working for GKM in 2003, before the purported Loglisci communication.